Israeli Cabinet Freezes Funds

JERUSALEM, Feb. 19 -- The Israeli cabinet agreed Sunday to immediately freeze monthly tax and customs payments that it collects on behalf of the Palestinian Authority, a day after the radical Islamic group Hamas took control of the Palestinian parliament. The move drew dire warnings from Palestinian officials who said the government would likely not be able to pay salaries to thousands of employees at the end of the month.

The cabinet's decision was part of a package of measures approved. Not included were some of the more harsh options recommended by Israel's national security ministries, including barring Palestinians in the Gaza Strip with work permits from entering Israel for jobs. But together, the measures threaten to collapse the nearly bankrupt Palestinian government, which Israel's acting prime minister, Ehud Olmert, said Sunday "is -- in practice -- becoming a terrorist authority."

Israel's decision puts it at odds with a group of Middle East peace interlocutors known as the quartet: the United States, the European Union, Russia and the United Nations. The group had recommended that Israel continue the transfers, an arrangement established under the 1993 Oslo accords, until Hamas forms the new cabinet. That is scheduled to happen in the next five weeks.

The money Israel froze accounts for about half of the government's payroll. The Palestinian Authority has 150,000 employees and trainees, almost half of whom are members of the security services. In recent days, angry government employees in Gaza have demonstrated over unpaid salaries from the previous month.

Israeli officials said the decision to withhold the roughly $55 million in monthly customs and tax revenue is designed to squeeze Hamas leaders. On Sunday, Hamas formally nominated Ismail Haniyeh, a popular party leader in Gaza, as prime minister.

The Palestinian Authority is also past due on millions of dollars in electricity and fuel bills owed to Israeli utility companies, threatening the power supply to the West Bank and Gaza. Jihad Wazir, the acting Palestinian finance minister, said in an interview, "We're one bounced check away from a major humanitarian crisis."

"This is our money, so what they've done is illegal," Wazir said. "Israel really jumped the gun, I suspect for political reasons, and it will severely affect our ability to pay salaries."

Israel has demanded that Hamas, designated a terrorist organization by the United States and the European Union, renounce violence, recognize the Jewish state and abide by agreements backed in the past by the defeated Fatah movement. Palestinian leader Mahmoud Abbas, Fatah's leader and the authority's president, echoed those calls in a speech Saturday to the new parliament, which is dominated by a Hamas majority.

But Abbas stopped short of requiring Hamas, formally known as the Islamic Resistance Movement, to meet those demands as a condition for forming the new cabinet. Israeli officials had hoped he would deliver that ultimatum before Israel's cabinet convened to consider recommendations from agencies responsible for Israel's defense, intelligence and diplomacy.

"Israel will not compromise with terrorism and will continue to fight it with full force," Olmert said. "However, there is no intention of harming the humanitarian needs of the Palestinian population."

Olmert, who became leader of the centrist Kadima party after Prime Minister Ariel Sharon's stroke last month, is facing sharp criticism from political rivals before the March 28 elections. The hawkish Likud party has accused him of failing to predict Hamas's victory and mishandling the aftermath, although the charges appear to have had no measurable effect on Kadima's large lead in public opinion polls.

Olmert initially froze the January transfer payment after Hamas's victory, but reversed the decision under international pressure not to harm the Palestinian Authority before the Islamic movement entered parliament. His cabinet decided Sunday to ask international donors, who contribute about $1 billion a year to the Palestinian Authority, to cease funding once the Hamas-led cabinet is approved.